Stocks swung wildly before rallying Tuesday after the Federal Reserve expressed growing concern about the direction of the economy, following the worst day for stocks since 2008.
The Dow Jones industrial closed up 429 points after a late rally. The S&P was up 4.7 percent, and Nasdaq up 5.3 percent
The Federal Reserve announced Tuesday afternoon that it would keep interest rates low through the middle of 2013, but did not announce any new measures to stimulate economic growth. This comes after a meeting of the Open Markets Committee.
The central bank said the economy has grown "considerably slower" than expected so far this year. The Fed has kept its key interest rate at a record low of nearly zero.
One day after the worst stock market losses in three years, the Fed's statement abruptly sent the Dow Jones Industrial Average from triple-digit gains to major losses.
It said so far this year the economy has grown "considerably slower" than expected.
One day after the worst stock market losses in three years, the Fed’s statement abruptly sent the Dow Jones Industrial Average from triple-digit gains to major losses.
The volatility in stocks is reviving memories of crises past for traders at the New York Stock Exchange.
Jonathan Corpina, a trader at Meridian Equity Partners, said he was reminded of the sell-off that followed the collapse of Lehman Brothers in September 2008.
"The major similarity is just the downturn in the market and the feel everybody has," Corpina said.
But there are differences. In 2008, traders could relate Lehman's bankruptcy and the implosion of AIG to earlier crises affecting financial institutions, like the Savings and Loan crisis of the late 1980s. There is little precedent for the debt problems now facing several advanced economies, including the U.S.
"This is a lot of unchartered water for traders, Wall Street types and for main street types," Corpina said. "I think that's what's adding to some of the fear that we're seeing in the market."
Investors' panicky response to the Federal Reserve’s statement echoed their take on remarks made by President Barack Obama on Monday, aimed at calming markets. Instead, share prices fell further.
Arthur Cashin, director of floor operations for UBS Financial Services, said the Federal Reserve is running out of tools to boost the economy, after two rounds of bond-buying did not produce lasting improvements.
Remarks made by President Barack Obama Monday failed to calm markets, and may have made stocks sink further. Traders expressed hope the Federal Reserve could do a better job of giving markets confidence, while acknowledging that the Fed is running out of tools to do that.
UBS' Art Cashin said he does not favor a third round of economic stimulus through bond-buying, because the program has not been truly effective.
"I think it was Einstein who said, the definition of insanity is doing the same thing over and over again and expecting a different result," Cashin said.
With the Associated Press
